EUR 850.00 For Business Accounts Only

Morningstar | Endo Raises Outlook on Xiaflex and Injectables Growth Along With Beneficial Product Mix. See Updated Analyst Note from 08 Aug 2018

We plan to modestly raise our fair value estimate for no-moat Endo after slightly better-than-expected second-quarter results thanks to ongoing strength of the company's generic injectable products and Xiaflex. The beneficial product mix and efficiency efforts improved gross margin and selling, general, and administrative expense, offset partially by higher research and development spending. Management slightly raised its year-end top- and bottom-line outlook, and we intend to raise our revenue and profitability forecasts slightly as well. Our current 2018 revenue forecast of $2.756 billion falls at the low end of management’s updated guidance. Additionally, Endo’s cash flow will moderately benefit this year from pushing back a portion of vaginal mesh-related payments into 2019.

Xiaflex, which posted 27% growth for the quarter primarily from the Peyronie’s disease indication, remains a source of strength for Endo as the firm’s opioid and generic product categories continue to face pressure. We intend to raise our near- and long-term forecast for Xiaflex as recent sales have outperformed our expectations and a potential new indication in cellulite could add to the market opportunity. Endo has completed recruitment of patients in two pivotal phase 3 trials for Xiaflex in cellulite with expected top-line clinical results later this year.

We have longer-term concerns about the stability of Endo’s generic injectables business, which relies heavily on the performance of Vasostrict and Adrenalin. Adrenalin’s sales surged 93% from last year, benefiting from the market removal of unapproved products. Longer term, however, we think the competitive environment looks cloudy for some of these products. Management still anticipates the Somerset acquisition to close by year-end, which should benefit the firm’s portfolio with more complex products. Endo also announced a licensing agreement with Nevakar for five undisclosed 505(b)(2) injectable products.